Tax policy

• Pillar 2 Directive and new VAT rules to combat fraud in the e-commerce sector enter into force 
• European Parliament approves opinions on DEBRA and FASTER, paving the way for their final adoption 
• Belgian Presidency’s tax priorities unveiled, includes estimated timeline of progress on key files 

New transparency rules to combat VAT fraud come into force

The new rules will provide tax administration of EU Member States with payment information for them to detect VAT fraud more easily, with a focus on e-commerce.

The new system harnesses the role of payment service providers (PSPs) such as banks, e-money institutions, payment institutions and post office giro services. These handle over 90% of online EU purchases.

As of 1 January, PSPs will have to monitor the payees of cross-border payments and, as of 1 April, transmit information on those who receive more than 25 cross-border payments per quarter to the administrations of EU Member States. This information will then be centralised in the new Central Electronic System of Payment information (CESOP). Read more

Commission makes several tax infringement decisions in January

European Commission (EC) announced its intention to send formal notice letters against several Member States who failed to notify EC of their national legislation to implement EU law. Several of these announcements relate to tax legislation.

Among them, Germany and Poland have been warned for not communicating their transposition of the 7^th Directive on administrative cooperation (DAC 7).  Estonia, Greece, Spain, Cyprus, Latvia, Lithuania, Malta, Poland and Portugal have also not notified of their national measures to implement the Pillar 2 Directive.

The Member States concerned now have two months to reply and complete their transposition, or EC could escalate the matter further. Read more

Plenary adopts report on further reform of corporate tax rules but rejects report on tax policy in times of crisis

European Parliament (EP) Plenary adopted on 12 December 2023 a non-legislative draft report on further reform of corporate tax rules. This was prepared by MEP Isabel Benjumea (EPP/Spain). The report was adopted by 495 votes in favour, 65 against and 58 abstentions.

Its recommendations to the EC includea call for cutting down regulatory burdens on businesses, especially SMEs, and a call  to carry out an impact assessment on the use of new technologies to tax administrative procedures.

Plenary also rejected another non-legislative draft report prepared by MEP Kira-Marie Peter Hansen (Greens/Denmark) on the role of tax policy in times of crisis. The report was rejected by 282 votes in favour, 300 against and 30 abstentions.

Ms. Hansen had proposed new taxes to mitigate against negative effects of recent crises. MEPs from the Right wing EPP, ECR and ID Groups mainly voted against. The liberal Renew Europe Group was more divided.. One of the concerns raised againstthe report was the need to let Member States  design their own tax mixes.

European Parliament adopts opinion on DEBRA

EP Plenary adopted on 16 January its opinion on EC’s Debt-equity bias reduction allowance (DEBRA) proposal, thus in theory paving the way for EU Member States to finalise the legislation – if only they wanted to. EP’s draft opinion was prepared by MEP Ludek Niedermayer (EPP/Czech Republic), and adopted in Plenary with 324 votes in favour, 132 votes against, and 155 abstentions.

DEBRA is still being negotiated in the Council, where a unanimity of Member States is needed for the file to pass. No agreement is in the horizon for the time being.

ECON considers amendments to HOT draft report

EP’s ECON Committee met on 22 January to discuss the amendments proposed to a draft report on Establishing a Head Office Tax system for SMEs (HOT). The draft report was prepared by MEP Lidia Pereira (EPP/Portugal). Some 172 amendments were tabled, touching upon a wide range of issues including eligibility requirements, duration of the regime and the extension of the scope to subsidiaries.

A vote in ECON Committee is currently scheduled for 22 January, followed by a Plenary vote on 10 April.

ECON hosts Belgian finance minister and discusses tax matters

ECON Committee hosted on 22 January Vincent Van Peteghem, Deputy Prime Minister and Minister of Finance of Belgium, to discuss Belgian Council Presidency’s priorities for the financial affairs Council (ECOFIN).

The minister notably acknowledged the difficulties in finding the required unanimous agreement on the withholding tax (FASTER) proposal, with “some Member States” having concerns notably about administrative burdens. He also underlined that in his view, the EU should take the lead on OECD Pillar 1 discussions.

ECON adopts FASTER position

ECON Committee voted on 23 January on its draft opinion on Faster and Safer Relief of Excess Withholding Taxes (FASTER). The report, prepared by MEP Herbert Dorfmann (EPP/Italy), was adopted with 39 votes in favour, 1 against and 1 abstention. A final vote in Plenary is currently scheduled for 26 February.

FISC holds hearing on capital gains taxation in the EU

EP’s FISC Committee held a public hearing on “Capital Gains Taxation in the EU” on 23 January. The diversity in capital gains taxes across EU Member States and the free movement of capital poses a risk for aggressive tax planning and evasion. The objective of the hearing was to investigate potential measures at the EU level to tackle this issue.

FISC Chair Paul Tang (S&D/Netherlands) argues that the issue could be addressed by assessing whether some capital tax regimes are deemed harmful within the scope of the Council’s Code of Conduct Group on Business Taxation. An additional approach could be to expand the scope of the automatic exchange of information to encompass capital gains associated with immovable property and financial assets.

To help inform the reflections , the hearing brought three experts to discuss: Chiara Putaturo from Oxfam, Sarah Perret from the OECD and Sean Bray from Tax Foundation.

Ms. Perret referred to the OECD’s work and research, and stated that there is room to reform the taxation of capital in ways that could raise additional revenue, enhance efficiencies and address inequalities. She also said that the OECD is currently working on a report on the matter. Read more

Belgian Presidency programme: tax priorities

Belgium took over the Council’s rotating Presidency in January and will hold it until July. Belgian Presidency has published a programme indicating its priority areas. For tax, these include the following:

• fight against tax avoidance, evasion and “harmful tax competition”
• tackle compliance costs and burdens faced by cross border investors – a clear reference to the FASTER proposal
• “explore the usefulness” of unified tax rules for mobile workers
• prioritise VAT in the digital age (ViDA) proposal
• continue work on the Energy Taxation Directive (ETD)

Some more specific expected dates for progress can be found in this document, which includes the currently scheduled ECOFIN meetings for the next five months as well as the planned topics for each meeting. Thus according to the document, the Belgian Presidency aims for the following:

• possible political agreement on FASTER at the 12 April ECOFIN
• possible political agreement on ViDA at the 14 May ECOFIN

status update on the BEFIT, HOT and transfer pricing proposals at the 21 June ECOFIN.

EU Member States not convinced by transfer pricing proposal

The European Economic and Social Committee (EESC) organised a public hearing on 25 January to discuss the BEFIT initiative. According to Agence Europe, Ingela Willfors, Director of the Tax and Customs Department at the Swedish Ministry of Finance, explained why EU Member States are sceptical about the transfer pricing proposal, issued by EC at the same time as BEFIT.

She argued that the interpretation of the OECD guidelines is not the main problem facing Member States. Rather, “most of the disputes we see concern facts and circumstances, not the interpretation of terms”. She also noted that most Member States have concluded bilateral tax treaties to avoid double taxation, and that procedures exist for settling disputes between two countries. Ms. Willfors also argued that there is a loophole in the proposal as it does not contain any mention of the third countries where the companies would have carried out transactions. Read more

Global energy crisis and government responses drive a significant fall in tax levels in OECD countries

High energy prices triggered by Russia’s war of aggression against Ukraine prompted governments to reduce excise taxes during 2022, leading to lower tax levels in many countries, according to new OECD analysis. Revenue Statistics 2023 shows that the average tax-to-GDP ratio in the OECD fell by 0.15 percentage points (p.p.) in 2022, to 34.0%. This was only the third such decline since the Global Financial Crisis in 2008-09: the level fell by 0.6 p.p. in 2017 and by 0.1 p.p. in 2019. Read more

EESC publishes positions on FASTER, HOT and VAT rules

The European Economic and Social Committee (EESC), consisting of representatives from Europe’s social partners in the industry and trade unions, has issued its opinions on several EU tax files.

See here for the opinion on HOT, here for FASTER and here for VAT rules relating to taxable persons who facilitate distance sales of imported goods. EESC’s opinions are non-binding, but reflect the views of the social partners and are the result of interactions with relevant experts.

OECD publishes new study on expected Pillar 2 impacts

OECD published on 9 January a new paper that assesses the impact of the global minimum tax (GMT) on the taxation of multinational enterprises (MNEs), based on a comprehensive dataset capturing the global activities of large MNEs. It has four key findings. First, the GMT substantially reduces the incentives to shift profits. Second, the GMT is estimated to very substantially reduce low-taxed profit worldwide through lower profit shifting and top-up taxation. Third, the GMT is estimated to increase CIT revenues. Finally, the GMT is estimated to reduce tax rate differentials across jurisdictions with potential impacts on the allocation of investment and MNE activity. Read more

Denmark introduces green tax on air passengers from 2025

Denmark agreed on 15 December to impose a tax on air passengers to help finance the airline industry’s transition to greener practices, which will be gradually phased in from 2025, the government said.

The government in November proposed imposing an average tax of 100 Danish crowns ($14.35) on air travel to help finance the industry’s green transition, which aims to enable all domestic flights to use 100% sustainable fuels by 2030. Read more